Light-emitting diode (LED) flameless candles are popular alternatives to wax candles, and they're safer too. As a result, many manufacturers are making the candles, including one company named Smart Candle LLC. Excell Consumer Products sued Smart Candle on Oct. 31, 2011, in federal district court in Minnesota, alleging that, among other things, Smart Candle's use of the trade name and trademark "Smart Candle" infringed on rights that Excell had over the use of that name and trademark. Excell asked for a permanent injunction against Smart Candle's use of the name, trademark and domain name "smartcandle.com."
Selective Insurance Co. insured Smart Candle at the time Excell filed its suit. Smart Candle requested that Selective defend it, but the insurance company disclaimed coverage under the policy. Selective pointed to relevant portions of the policy that covered "personal and advertising injury," which the policy defined as injury resulting from, among other things, "Infringing upon another's copyright, trade dress or slogan in your 'advertisement.'" Excluded from that coverage of personal and advertising injury, however, was any injury "arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights." The exclusion clarified that it didn't apply to "infringement in your 'advertisement' of copyright, trade dress or slogan." Because the policy required the insurer to defend only suits claiming infringement of "copyright, trade dress or slogan," Selective insisted that it had no duty to defend Smart Candle against Excell's suit for infringement of the "Smart Candle" trademark.
Ten months after the suit was filed, Smart Candle requested reconsideration, but Selective again disclaimed coverage. Because Excell didn't claim infringement of a slogan or copyright, Selective again determined that it had no duty to defend or indemnify Smart Candle. Excell won its trademark infringement suit against Smart Candle.
(Photo: Shutterstock)
Dueling court cases
In April 2013, Selective filed an action in federal court in Minnesota for a declaration that the carrier owed no duty to defend or indemnify Smart Candle in the Excell lawsuit. Smart Candle counterclaimed for breach of contract, asserting that Selective had not conducted any reasonable investigation of Excell's claims, including a review of Smart Candle's website or any of its advertising before denying coverage. Selective denied that allegation and moved for summary judgment. Smart Candle in turn moved for partial summary judgment.
The federal district court granted summary judgment in favor of Selective, noting that the insurance policy didn't define the term "slogan" so the "popular and ordinary meaning" applied. The court pointed out that Excell's complaint was based on the improper use of "Smart Candle" as a mark, trademark, trade name, and name, and no reasonable jury would conclude that Excell was suing for slogan infringement. The court also concluded that Selective had no duty to investigate beyond the allegations in the complaint to determine whether other facts could be interpreted to trigger the insurer's duty to defend or indemnify. Interpreting "trademark" also to mean "slogan" would "render meaningless" the policy's differentiation of the two terms, the court explained, contrary to the rules of contract interpretation in Minnesota, the state law that applied to the insurance contract. The trial court ruled in favor of Selective, and Smart Candle appealed to the U.S. Court of Appeals for the Eighth Circuit.
(Photo: Feng Yu/Shutterstock)
Trademark and slogan
The appeals court agreed with the trial court that even though the insurance policy didn't define "slogan," the term is unambiguous so the "plain and ordinary meaning" applies. According to the dictionary, the appeals court said, a slogan is "a word or phrase used to express a characteristic position or stand or a goal to be achieved," and "a brief attention-getting phrase used in advertising or promotion."
Smart Candle claimed that Excell's lawsuit was arguably based on Smart Candle's use of the phrase "Smart Candle" as both a trademark and a slogan or as just a slogan. The appeals court disagreed, explaining that the words "Smart Candle" on their own, don't express a position or stand or goal, and they're not attention-getting. The words convey no information about the product and add no recognition beyond the trade name. Because there are no allegations in the complaint regarding misuse of a slogan, the court ruled, Selective properly concluded that its duty to defend had not been triggered. Without a duty to defend, Selective also has no duty to indemnify Smart Candle for the defense costs, the appeals court ruled, upholding the grant of summary judgment in the insurer's favor.
Conduct a trademark search
Neither the trial court nor the appellate court opinions have any information about whether Smart Candle conducted a trademark search or registered the trade name "Smart Candle" before it purchased the domain name and began doing business as "Smart Candle." It's becoming a more common problem with the significant expansion of e-commerce and establishment of websites by less sophisticated businesses for them to choose a name without conducting any due diligence to be sure the name is available for use.
You can start by checking with the agency in your state that registers businesses to find out if there are any other businesses using the same or a similar name to the one you've chosen. You also can use any of several search engines to see what turns up when you search for the business name you want to use.
Clarify terms in your insurance policy
Another issue facing Smart Candle in this case was the fact that the term "slogan" wasn't defined in the policy, although it was excluded. When you review your business policies with your agent, broker or carrier, be sure you understand what the terms mean and ask to have them defined if you're unclear or if they can be subject to interpretation in more than one way. It's important that you and your carrier agree on the definition in your policy as the term applies to your business. Otherwise, you may find yourself in the same position as Smart Candle—with no coverage when you really need it.
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